Will foreigners in Costa Rica hurt from capital controls bill?
by Ivo Henfling
President of Costa Rica, doña Laura Chinchilla, proposes a new bill to control capital that flows in and out of the country. The Colon is the most depreciating amongst 19 Latin American and Caribbean economies tracked by Bloomberg.
Doña Laura Chinchilla announced measures to slow capital inflows that she called “weapons of mass destruction” against the nation’s economy.
Is this bill an effort of keeping retirees and foreign investors out of Costa Rica? Will it hurt Costa Rica real estate owners? The Costarican government has created the Luxury Home tax as well as the Corporation Tax, both overrated in the press, but that is another story. Many of my readers have asked me for a comment on this proposed bill, so here we go.
The Proposed Bill
I have tried to find the proposed bill but can only report to you what I have found in the many articles online in the different languages. Opinions vary about the presentation of this bill. But what is the bill all about?
The bill was presented to congress by Finance Minister Edgar Ayales to seek congressional approval to raise levies to as much as 30 percent on top of the actual 8 percent income tax on foreign investors who transfer profits from capital inflows out of the country. This kind of capital is called “Capital Golondrina” in Spanish.
Ayales also says that there is another, much simpler measure that includes a change to the Organic Law of the Central Bank. According to the Finance Minister it is simpler to make a capital reserve of 25% of the capital that comes from abroad to be invested in government securities or the Central Bank.
The base rate in Colones is now at 9%, while in the United States the dollar rate is around 0.25%, which brings a lot of foreign or “non-resident” capital, also called “Capital Golondrina” into the country to speculate by investing in exchanging dollars and colones and short term loans. The government and the Central Bank are looking for options to control this inflow of capital.
GoDutch Realty investigates
I have not seen any newspaper giving an explanation to what “capital golondrina” is, more about that under my personal opinion. Most people don’t understand the whole issue about this capital controls bill and why the government is attacking the foreigners in Costa Rica again. It is easier to complain than to investigate a little. That sets GoDutch Realty apart from the crowd. GoDutch Realty does investigate and reports to you about your Costa Rica real estate purchase, as well as about the different taxes you have to pay if you own a luxury home in Costa Rica or have your assets in a corporation.
My Personal Opinion
In my personal opinion, those who are running a scare into the expat community are making a big mistake by giving wrong information. The mistake is the word foreigner, which is the wrong word. They should use the word non-resident. The second mistake is that it should be clear that the government is talking about speculation on “short term” investments; they call it “capital golondrina” or “hot money”. The internet is a great source to find out what hot money is, and here is a great explanation. So if you are worrying about this proposed bill going to increase your cost of living in Costa Rica, I don’t think it will.
No Worry for Costa Rica property owners
This proposed bill has nothing to do with owning a home or an investment property in Costa Rica, selling it and taking that money out of the country. Nor is it a problem when you are planning to send money to Costa Rica to purchase a property. If you are a resident, you have nothing to worry about, unless you want to bring in capital from out of the country to speculate. If you are a non-resident and live here on a tourist visa, it is time you become a legal resident in Costa Rica but even if you own real estate and you sell it, you should not have any problems with the proposed bill.
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